Among men and women aged 65 who have purchased long-term care insurance, more than one in three will let their policy lapse before they die. Why do so many policies lapse? That's what researchers at the Center for Retirement Research at Boston College wanted to know. Their analysis shows that cognitive impairment is one important reason for lapsing. With age, some policy holders—the ones who will need long-term care the most—forget to pay the premium or no longer understand why they need a policy.
A higher cognitive score is associated with lower lapse rates, report the researchers. Interestingly, so is having a daughter—someone who can remind the policyholder of the importance of paying the premium. "Having a daughter is associated with a 14.3-percentage-point decrease in the probability of lapsing," the researchers report.
Source: Center for Retirement Research at Boston College, Why Do People Lapse Their Long-Term Care Insurance?
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According to a study released by the Society of Actuaries in July of 2015 seniors were three times more likely to lapse their long-term care policies in the year 2000 than they were in the year 2011.
There are several factors that have contributed to less seniors lapsing their long-term care policies, but the main reason is this: federal law.
A federal law was passed that requires insurance companies to re-instate a long-term care policy at least 5 months after it has lapsed if the policyholder was cognitively or functionally impaired when the premium was due.
The law also requires insurance companies to notify every long-term care policyholder, at least every 2 years, asking every policyholder to designate which family members, friends and/or advisors they want to be notified if their policy is in danger of lapsing.
This federal law does NOT apply to policies purchased before 1997. This law only applies to long-term care policies purchased on or after January 1, 1997.
This huge drop in policy lapses is strong evidence that this federal law works and it’s protecting seniors.
Premium increases can force policyholders to drop policies, too. There have been instances where rates have jumped 50% or more.
George Lambert
Author, A Boomer’s Guide to Long-term Care
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